The cash you are missing out on

Losing money ... Australians who leave large sums of cash in a transaction account are missing out in hundreds if not thousands of dollars in interest. Picture: Thinkstock Source: Supplied

AUSTRALIANS are missing out on hundreds if not thousands of dollars a year each by leaving stashes of money parked in day-to-day transaction accounts.

Many financial institutions have completely dumped paying interest on daily bank accounts while some of the major banks pay a meagre 0.01 per cent interest.

Fifty cents is the amount of interest earned on $5000 of savings with a minisclue 0.01 per cent interest rate over 12 months.

CASH: Why it still remains king in Australia

Consumer watchdog Choice has issued a stern warning to consumers to take action and beat the banks by parking sums of cash in other accounts that earn them interest or alternatively help reduce the hefty interest costs on their home loan.

Beat the banks ... Tom Godfrey from Choice has sound advice. Source: Supplied

"Consumers are missing out on hundreds of dollars a year by leaving money in transaction accounts,'' Choice spokesman Tom Godfrey said.

"Some of the big banks say they pay an interest rate but they offer just 0.01 per cent which is clearly not doing anyone any favours.

"It's really important to know what type of account you have because transaction accounts pay very poor interest.''

Interest rates on savings accounts have continued to tumble while the cash rate has remained at a historically low 2.5 per cent.

Choice research shows the average ongoing rate for a savings account has fallen from 2.94 per cent at the start of the year to 2.88 per cent.

But Mr Godfrey said there are better ways you can make your money work for you.

"To get around the low interest rate you can link your money to a high-interest account and you can also use a home loan offset account if you have one,'' he said.

Financial services firm Canstar's finance editor Justine Davies said if you do have spare cash a transaction account and term deposits are not the best place to put it.

Do the math ... you could be making more money while doing nothing. Source: Getty Images

"Term deposit returns are lacklustre,'' she said.

"You'd need to lock your money away for two years just to get a four per cent return.

"If you need to park cash somewhere, the best place in my opinion is a mortgage offset account. "With average variable home loan rates of 5.15 per cent it's a better return that you'll get anywhere else for cash — plus it's tax free."

A mortgage offset account is a transaction account linked to a home loan and the money in this is offset against the loan balance.

For a $300,000 mortgage if an offset account has a $10,000 balance interest will only be charged on $290,000.

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